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YUM reported October comps for its China Division yesterday after the close.  Total China comps (-5%) and Pizza Hut comps (+10%) beat expectations, while KFC comps (-7%) missed expectations.  Overall, we view this as positive news.  Total comps improved 600 bps sequentially from September and the recovery appears to be on track, as October marked the first month in several that overall results have come in above expectations.  We expect China comps to be positive in November, December and throughout 2014, as the company begins building sales momentum and lapping easy comparisons.

YUM: OCTOBER CHINA COMPS BEAT EXPECTATIONS - 11 13 2013 11 00 22 AM

 

YUM: OCTOBER CHINA COMPS BEAT EXPECTATIONS - YUM China SSS

As it stands, YUM is our favorite LONG in the big cap QSR landscape and, despite facing significant volatility over the past year, its long-term growth story remains intact.  As China same-store sales begin to accelerate meaningfully, we believe YUM’s earnings growth will follow suit and accelerate for the next year, and potentially longer, as margins begin to regain form.  We will be looking for more details on the pace and extent of the recovery during YUM’s Investor Conference on Wednesday, December 4, 2013 and will post on anything incremental following the meeting.

 

YUM: OCTOBER CHINA COMPS BEAT EXPECTATIONS - RLMMM

 

 

 

Howard Penney

Managing Director